Bradley Inc. has the capacity to make 100,000 windows. Bradley is currently oper

Question

Bradley Inc. has the capacity to make 100,000 windows. Bradley is currently operating at 100% capacity. The windows usually sell for $20.00 each. The costs for each window follow:

Direct Materials 5.00

Direct Labor 3.00

Variable factory oh 2.00

Fixed factory oh 4.00

Total $14.00

The Army has offered to buy 10,000 windows for $12.00 each for barracks. Bradley should:

1. Reject the order because the company will lose $20,000 on the order

2. Accept the offer because the company will realize $40,000 in additional contribution margin

3. Accept the offer because the company will realize $20,000 in additional contribution margin

4. Reject the offer because it currently does not have enough capacity to accept the order.

Explanation / Answer

4. Reject the offer because it currently does not have enough capacity to accept the order.

Feedback: Bradley should reject the offer because it would have to displace orders for the windows that are priced higher than $12.00 i.e $20.00

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